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NEW DELHI : The government is open to giving incentives to the domestic solar industry to help ease the impact of high import duties on solar modules and cells.

While the government is not in favour of giving tax relief to importers of solar modules, it is open to examining any “workable plans" presented by the industry for support, said a person aware of the matter.

The government is of the view that incentives could be given directly to the industry where needed, but tweaking taxes could prove to be counter-productive, add to litigation and set a precedent to more sectors asking for tax breaks.

Businesses had sought relief for projects that were bid out prior to the announcement of the customs duty. But the government believes such exemptions can create practical difficulties, said the official, who spoke on the condition of anonymity.

The reluctance to provide tax exemption also gains emphasis from the fact that the government is looking at creating an exemption-free tax regime.

In March 2021, the government announced a 40% basic customs duty (BCD) on solar modules and 25% on solar cells with effect from 1 April 2022 in a bid to cut imports, most of which come from China, along with encouraging domestic solar module production to cater to local demand. The social welfare surcharge (SWS) takes the customs duty on solar modules to 44%.

Among several steps to curtail import dependence, the Centre also announced a production linked incentive (PLI) scheme for solar modules. In the union budget for FY23, finance minister Nirmala Sitharaman allocated 19,500 crore in PLI incentives for local manufacturing of solar modules, bringing the total to 24,000 crore. Initially, the government had announced an incentive of 4,500 crore under the scheme.

According to industry participants, the increased import duty could derail the installation of solar projects awarded prior to the imposition of the duty, which has increased the cost of building solar projects as solar modules make up as much as 60% of the total project cost.

People aware of the developments said the industry has submitted several representations to the ministry of new and renewable energy seeking grandfathering of the projects awarded till 9 March, when the announcement was made. However, the government does not intend to provide any such exemption.

Queries sent to the department of revenue and the ministry of new and renewable energy remained unanswered.

A few solar power developers have also tried ways to avoid paying the duty. On 4 June, Mint reported that certain developers were declaring entire solar plants as a “customs bonded warehouse“ to avoid paying duty.

On 11 July, the Central Board of Indirect Taxes and Customs revoked the concessions it had granted under the bonded warehouse scheme, which had allowed solar developers to defer payment of the steep import duties. The matter has now reached the courts.

India aims to achieve 500 GW of installed renewable energy capacity by 2030 out of which 280 GW is expected to be solar.

As of 30 June, the total solar power capacity installed in the country stood at 57.706 GW, according to data from the power ministry. A report by Mercom showed that India added 3.9 GW of solar capacity in the June quarter, an increase of 15% compared to 3.3 GW installed in the previous quarter.

rituraj.baruah@livemint.com

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